To supplement Erik’s links and analysis below, see Scheiber on the one hand and Sargent on the other. I still lean towards the former, for similar reasons — given how little he was able to extract out of the Republicans when he had an unusual amount of leverage to work with, it’s hard to imagine that the debt ceiling isn’t going to be used to come up with something worse. But we’ll see. Of course, this is not all on Obama — the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.

The only encouraging thing about this deal is that is reinforces my skepticism about assertions that Obama is inherently committed to making big entitlement cuts. The best you can say for this deal is that the cost-of-living chains on Social Security were taken out of the deal. This is only a win if they don’t reappear during the debt ceiling negotiations, but much better to compromise on tax rates than on Social Security.

Comments (112)

Both sides lost leverage for the next round in February/March. The Republicans won’t have the expiration of the green energy tax credits, unemployment insurance, or the middle-class tax cuts to hang over Obama’s head.

(I’m not counting the middle class tax cuts because they would have been extended regardless).

But that doesn’t make any sense. It is specifically because you know your opponent has to do X that X gives you leverage over him in a negotiation.

Anyway, my comment about wasn’t about every bit of leverage each side will have – for instance, I didn’t mention to the outstanding Defense cuts – but about how the deal changes what leverage each side has.

I’m a little surprised by this, in that it appears Obama is less committed to Social Security and/or Medicare cuts than I thought he was. He’s willing to put them on the table, of course, but if they were a major policy priority for the administration and top Democrats, I don’t see why they wouldn’t be in the deal.

I do not actually think that Obama is firmly committed to any particular policy in this regard. He is certainly a bit of a deficit hawk, and has been since he was in Congress, and, from things he has said, he seems to think we need to make some cuts to Social Security and Medicare to “save them”. I blame it on overexposure to Friedmanite economics when he was at Chicago.

And yet, there have now been multiple deals with Congressional Republicans that have not included these huge Social Security/Medicare cuts. I guess we all need to thank Republicans for saving our entitlements?

I’d say that. Obama talks about all kinds of adjustments to the safety net but neither party takes up his offers. That tells me either they know its a bluff and ignore it or they won’t touch it. More likely number two, based on the Republican experience under Bush in term 2 and death panels under Obama influencing 2010.

As for the Chicago school influencing Obama’s view of economics, no doubt. Or he’s come to a similar view independently. See Krugman’s concerns on an ongoing basis about Obama’s use of austerity framing when it’s completely unnecessary. Obama seems to lack a certain sophistication in understanding macroeconomics in any case. Perhaps he’s just constrained his thinking due to his tendency to operate within the political limits defined by others in economic debates. In any case, he does not push the Keynesian macro envelope in any way. He’s clearly reluctant to do so.

I have never felt that Obama wants to cut any of these programs. I think he is willing to, if he thinks its the best option, but I think the ongoing trope that he is out there with a chainsaw to destroy the safety net was always bullshit put out by the Obama-betrayed-progressives crowd.

It may be at that. I still think that some of it is very bad negotiating insofar as it feeds dangerous rhetorical beasts. But outcomes matter too! I foresaw some doom that didn’t come to happen and am willing to say I got it wrong. I hope that I keep being wrong about those predictions, too.

I do not know if he “wants” to cut them, though he has said things, most recently on Meet the Press, that indicate he does. I do know that he is more than willing to cut them to get a deal, based on repeated offers to do so.

which is as good a reason as any, to continue working to get rid of them.

the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.

The biggest problem for me is that this deal seems to make the Bush tax cuts for those making $450k and below permanent rather than just extending them. If that’s true, then it’s terrible. There might be some political will to raise taxes on the very rich, but I doubt we’ll see the political will anytime soon to raise taxes on those making $450k and below. And “Starve the beast” is going to inch forward even more.

I’m not sure I get what you’re trying to say, but I don’t know that it matters, either. The starve the beast theory only works if you assume that, given a sovereign debt crisis somewhere in the future, the public at large would rather endure austerity and massive cuts to basic social service spending than increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation in the intermediate term. That is, shall we say, a touch unlikely.

I am just noting that this is indeed possible and I am not convinced it could not happen here. The lack of their own currency has nothing to do with choosing between these alternatives (though it cuts out devaluing the currency and other possible responses). It is also the case that the wishes of the American people are not necessarily in play here, given GOP gerrymandering and perpetual control of the House for the foreseeable future. There are also a lot of Conservadems in Congress.

“The lack of their own currency has nothing to do with choosing between these alternatives”

Um, yes it does. Quite literally it means that, unlike the U.S., they can’t literally print new money to pay off at least a portion of their debts, so addressing the debt crisis requires nothing but changes to taxes and spending.

And, again, there’s an existential element to this as well. For the U.S. to get to the point that, say, Greece is, we’d have to see a change in circumstances that would essentially make us an entirely different country in terms of our economic standing.

Which was not part of the choices you offered and was covered in my comment. What you said was:

the public at large would rather endure austerity and massive cuts to basic social service spending than increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation in the intermediate term.

Yeah, I’m sure Republicans will agree to “increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation” and won’t demand cuts to social services.

Has their extremism stopped them from controlling the house? I’m not sure betting on “people will realize they’re crazy and vote them out of office” is a good idea. Actually, I’m pretty sure that it’s a terrible strategy.

Well remember, we’re talking about a hypothetical future in which the United States government is facing an honest to god debt crisis, which would represent arguably the greatest economic crisis in the history of the country. I dare say that might change the country’s political landscape just a smidge.

Though even then, it’s already the case that Republicans’ desire to cut spending stops at the point where the spending in question primarily benefits Republican voters, so it wouldn’t even have to change all that much.

And we’re talking about a political party that was ready to have the US go into default to get what it wanted, and is gearing up to do so again. To bet that they’ll do three things that are anathema to them in exchange for nothing strikes me as unwise, to say the least.

Well, okay. Yes, if the government decides to pursue the elite friendly way out of our incredibly unlikely but technically possible crisis and the public at large then refuses to vote for the opposition party, we would be fucked. So your solution is to pursue austerity and economic stagnation now to avert this?

You might want to take a look at the electorate before making such a blatantly silly comment.

Everyone–EVERYONE–knew exactly what the GOPers want to do. Did you NOT hear what economic platform the Teabagging GOPers ran on? Nothing at all about “increases in taxes on millionaires” and everything about “cutting spending.” And while we can all sit back and relish the idea that “Well more people voted for Democratic Congressmen than GOPers blah blah blah,” the REALITY is that GOPers won a majority of the actual seats in the House and they (with their “starve the beast” Norquistian view of government) occupy a majority of seats in a majority of state legislatures and a majority of state governorships (and it’s that “majority of state legislatures” aspect that led to the packing Dems into fewer Congressional seats which allowed the GOP to win that Congressional House majority).

Do you honestly think the majority of VOTERS elected GOPers with the idea that “Well, no, they won’t *really* try to do what they ran on once they get to Washington?” That kind of thinking is what led so many people to be “shocked” when Scott Walker went through with his plans. People who had a working knowledge of reality weren’t surprised at all; only those who view politics through some sort of rose-colored glasses were surprised.

Whether or not they know how the government works, they seem to have a decent idea about how politics work. The Bush tax cuts (along with wars and the recession) caused deficits to balloon, and those large deficits have lead for the recent calls to cut spending.

First the Republicans, then the chattering class, then certain members of the ignorant masses who say we can’t afford anything because we have to borrow money from China, then the Democrats. Soon you have Obama talking about how the government needs to tighten its belt. I doubt that he and others would embrace cuts so much if we had been running surpluses and not deficits for the past decade.

Now, perhaps the Democrats are just really astute politicians and are bluffing about the cuts they have signalled that they’re willing to make. Maybe the ignorant ramblings of talking heads and people on the street don’t make much of a difference. Maybe the reports we heard that the administration asked for a smaller stimulus because they were worried about looking like they were spending too much money were wrong.

So you don’t think that “certain members of the ignorant masses” think we need spending cuts? Is your opinion that Democrats are bluffing when they say that they are willing to make spending cuts? Or that spending cuts would have the same support if we had been running surpluses as it does now that we’re running deficits?

“So you don’t think that “certain members of the ignorant masses” think we need spending cuts?”

Like, as in, at least two people? um, sure. So what?

“Or that spending cuts would have the same support if we had been running surpluses as it does now that we’re running deficits?”

Probably not, but so what? A) Is your contention that the government should be running a surplus even though there’s a catastrophic shortage in aggregate demand, b) for this to happen in the first place we’d likely need a completely different state of opinion that favored lower levels of spending to begin with.

No, my contention is that the government should be running a surplus in times of plenty and go into deficit spending during recessions. My point is we’d probably see less political focus on cutting spending and more on, say, jobs if we hadn’t racked up the kind of debt we did during the Bush years.

Well, they’ll only “need” it if lenders suddenly aren’t willing to loan the U.S. government money, or if we wind up in a 1992-esque situation where crowding out is one of the economy’s main problems. If neither of those conditions are met, however, they won’t “need” to do anything.

Eh, I side with Krugman on this. Though the deficit isn’t the problem right now, we’re going to have to cut it eventually, especially since borrowing costs will rise once we get out of this recession (and also since there’s a lot more our government needs to be doing). The Bush era “deficits don’t matter” mentality is only going to lead us into another mess.

The difference between the $250K and the $450K threshold isn’t that large anyways either in terms of revenue or distribution. The concern is that it’s not very much revenue and not very much tax increases on the rich, which >$250K wasn’t either.

People with a working income around 450 k are not the idle rich. They are doctors, lawyers, engineers and small business proprietors…

In addition, I see taxes going up on everyone for a while. Programs are needed and they need funding. Don’t be so sure the political will doesn’t exist. The 99% have been waking up over the last decade and they are increasingly unhappy with the wealth gap.

“But we’ll see. Of course, this is not all on Obama — the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.”

Indeed, because doing anything to fight against Democrats selling out in the senate would constitute “Green Lanternism” and that would be foolish because everyone knows actually fighting for something never works.

Green Lantern!!!

Obama has already undermined your position of November 29th. By agreeing to kick the can down the road we now enter indefinite deficit reduction negotiations. The frame of political debate in this country (5 years into a systemic stagnation) is now about the mix of cuts and taxes necessary to balance the government budget and not about how to restore economic growth so as to improve the standard of living of the majority of Americans. Since fighting for anything progressive is Green Lanternism we are left to always play on the defense so as to minimize how far and how fast The right and center can cannibalize the public sector.

You are now reduced to finding the the silver lining in Obama offering up cuts to Social Security and Medicare but not actually making those cuts. Social Security used to be a third rail no one could even mention touching. Now, (thanks to a logic that posits all efforts at fighting for something you might not win in the next 22 minutes is pointless) we are reduced to being grateful that Obama didn’t actually act on his threat to cannibalize the most popular and most efficient program in the federal government. Whoopie!!!

“The frame of political debate in this country (5 years into a systemic stagnation) is now about the mix of cuts and taxes necessary to balance the government budget and not about how to restore economic growth so as to improve the standard of living of the majority of Americans.”

Well if that’s the case, the progressives who are fixated on raising upper income tax rates are as much a part of the problem as anyone else.

As I go about trying to come to a firm conclusion about this deal, I can’t help but note that people like our friend SN are holding forth with standard boilerplate and talking about process, more than commenting on the specific content of the deal.

Obama offered the Republicans the opportunity to cut Social Security, and they didn’t take it because it still is the third rail of American politics. Meanwhile, he hasn’t been offering up cuts to anti-poverty programs like Medicaid, which the Republicans would take because they aren’t third rails. I think he’s doing this with the intention of getting the results he’s getting.

Indeed, because doing anything to fight against Democrats selling out in the senate would constitute “Green Lanternism” and that would be foolish because everyone knows actually fighting for something never works.

I think you must have actually gotten a PhD from non-sequitur university.

The only encouraging thing about this deal is that is reinforces my skepticism about assertions that Obama is inherently committed to making big entitlement cuts.

I don’t know if Obama is inherently committed to big entitlement cuts. My own sense is that he much prefers reforms to these programs that keep their basic structures intact and are in line with liberal/Democratic principles. My biggest fear is that Obama’s personal preferences quickly become irrelevant within the political contexts in which he operates. Thus with the fiscal cliff he could keep Medicare and Social Security off the table and train his fire on preserving/extending other priorities. But with the debt ceiling suddenly he finds himself having to give up a lot more than he might ordinarily prefer, mainly because he’s committed to responsible governing, whereas his interlocutors are not.

Jared Bernstein nicely articulates this dilemma when discussing the belief among some Democrats in the White House and Congress that they have just as much leverage to extract concessions on the debt ceiling as the GOP does.

But with the debt ceiling suddenly he finds himself having to give up a lot more than he might ordinarily prefer, mainly because he’s committed to responsible governing, whereas his interlocutors are not.

One thing I noticed is all the Democratic gets in the deal are temporary while all the Republican gets are permanent. I tell ya, if I held Harry Reid hostage in his office, I could probably walk away with $1 billion tax-free and still get to shoot Reid in the leg.

The tax rates are permanent. Their not a “get” for either side, but a compromise between the two. I’d say that the Democrats took some temporary gains on stimulus measures in favor of holding out for a more favorable compromise after going over the cliff.

It also includes the dividends rate, which is now linked to the capital gains rate for the foreseeable future rather than the ordinary income rate. It also locks in the estate tax at extremely generous parameters. It, however, leaves the energy extenders and refundable credits as future leverage for Republicans to extract concessions.

You’re ignoring the part where I said the Democratic gains were very easy to get. Obama said the $250K threshold was free, yet in conceding to $450K (which doesn’t matter much in reality but is psychologically important) he did not get a Democratically-favorable package on everything else.

Obama’s “I get that for free” line was in reference to the package he was working on with Boehner, which was for $800 billion in new revenue through tax reform without raising rates. This deal looks like it’s got $600 billion in new revenue, so perhaps Obama settled for less than he said he could get for free, but tax reform is still on the table to be bargained over.

This is more or less what I expected (and frankly hoped for)- no matter what the “deal”, the House teahadists will always want more. (Even the Senate Republicans must be getting heartily sick of them.) The only way it might be revived in the new Congress is after Boehner is re-elected Speaker- if he is. Otherwise, we’ll be at the bottom of that slope for a while- until the next Democratic retreat.

The optics favor Obama significantly, and especially with the widening of the Boehner/Cantor rift, the press may actually be forced into telling the American people that this is all on the GOP. Obama sending Biden in (at McConnell’s request) and getting 89 Senate votes was a major sign of good faith. Now that it’s in the House, suddenly we’re back to the faction politics talk as the GOP tries to round up votes. I know the press can make anything look like BothSidesDoIt, but this one should be easy enough that a caveman TV journalist can do it.

OK, if the result of all this shitshow is to set the precedent that the Hastert Rule can be broken, then I do definitely see this as a win for Obama and as putting him in a better position in 2 months than I thought. Establishing a bipartisan coalition of the sane in the House, while it will certainly not make progressives (including me) happy, is essential for the country to be governable at all for the next 2 years.

Perhaps he figured out that it’s actually better than standing still while Cantor knifes him in the back. In fact, I hear it’s now Cantor who’s going to eat a shit sandwich and vote for the bill he was denouncing a few hours ago.

The Hastert Rule was never a law of nature, so I don’t see much of a change in leverage just because they broke it under these extraordinary circumstances. As long as Boehner wants to keep his speakership (assuming he retains it — Cantor voted against passage tonight) he’s going to have to continue the “majority of the majority” policy.

2. If Boehner gets no significant opposition, then the caucus has likely decided to make him the scapegoat for everything they don’t want to, but will have to, do. That bodes well for getting the minimum done. Boehner will get canned at the earliest time that Republican political options improve.

3. If Boehner gets re-elected with a close vote he’s on permanent probation and all variations for the debt limit / sequestration scuffle are possible. He’ll get canned, same as option 2.